Analysis by an industry leader has examined how the type of borrower affects the likelihood of a mortgage default

Commonwealth Bank chief executive Ian Narev sees a bright future for brokers, as long as they continue to put the client first

When it comes to succeeding in mortgage broking – or, for that matter, in banking – Commonwealth Bank chief executive Ian Narev has one watchword: integrity. Narev believes the single greatest thing brokers can do to succeed is to put customers’ interests first, and argued that bankers must strive toward the same goal.

“The absolute core of why we are here is the interest of the customer, and the moment we forget that we put the institution at peril. If you don’t look after the financial wellbeing of the customer, it harms the reputation of the institution.”

When it comes to succeeding in mortgage broking – or, for that matter, in banking – Commonwealth Bank chief executive Ian Narev has one watchword: integrity. Narev believes the single greatest thing brokers can do to succeed is to put customers’ interests first, and argued that bankers must strive toward the same goal.

“The absolute core of why we are here is the interest of the customer, and the moment we forget that we put the institution at peril. If you don’t look after the financial wellbeing of the customer, it harms the reputation of the institution.”

A perfect example of the kind of damage a lapse in integrity can wreak upon an organisation is the Storm Financial fiasco. The 2009 collapse of the erstwhile financial planning firm and Commonwealth Bank’s response throughout the ordeal continues to be the subject of class actions and court cases and has spawned an entire regulatory regime that planners are still coming to terms with. Narev said it was proof of the far-reaching reputational impact that putting profit before people can have.

“I told our team it was seven financial planners who let us down out of 50,000, and it’s still a headline in the papers. That’s why our people need to understand that each and every one of those 50,000 is the guardian of a 100-year reputation,” he said.

It may cut against the view many – including brokers – have of the major banks as profit-first corporations, but Narev argued that any organisation lives and dies by the reputation it has with its customers.

“We haven’t been and never will be perfect. When we do wrong we try to make it right. But the number one thing our people have to focus on is the interest of the customer, and there is no sales result, no profit result, no reward or anything that ever excuses doing wrong,” he said.

Narev said this was one of the reasons CBA felt comfortable taking a stake in Aussie Home Loans. He argued that Aussie’s reputation, and founder and chairman John Symond’s personal values, were a fit for the bank.

“When we first discussed the strategy with the Aussie partnership back in 2008, I remember going back to our board to say that there is an alignment of values. John has built a business that is values based. If we had any doubt about that, we never would have made the investment,” he said. “It may be great at generating profits, but if it was doing the wrong thing by customers, there’s no amount of profit that would justify that.”

The investment, which has seen the bank up its stake in Aussie Home Loans from 33% to 80%, with the eventual goal of taking a 100% stake, is testament to CBA’s confidence in the broker channel, Narev said. He predicted that the broker channel would continue to grow, and said that its growth reflected consumer preferences.

“At CBA we have our own channels, and if every Australian wanted to get their home loans from our channels we’d be delighted. But the fact is that is not the case, and that will never be the case,” he said.

Narev said the competition brokers provide to the majors ultimately keeps banks on their toes, to the benefit of consumers.

“The broker channel has a strong proposition to customers, and we may as well be a part of that. If that forces our direct channels and our branches to be more competitive, that’s good for customers.”

Narev said he expected the broker channel – and Aussie in particular – to continue to carve out market share. This belief, he said, drove the strategy behind CBA’s investment in Aussie.

“There would be no point in trying to make John [Symond] rich if the business had peaked. Not only do we see the business as not having peaked but we also see the partnership between CBA and Aussie as being able to take it to another plane,” Narev said.

Much has been made about CBA’s controlling stake in Aussie, with detractors claiming it represents further big-bank dominance, an encroachment into the independence offered by brokers. But Narev dismissed this notion. Instead, he argued it would be business as usual for Aussie – in large part, he said, because Aussie Home Loans was already doing perfectly well.

“It ain’t broke, and on the contrary it’s thriving. We saw this as the ability to partner with what we consider the leading franchise in a growing sector, and the last mistake we would ever make is to change it.”

THE HUMAN TOUCH

While Narev said the bank had no interest in changing Aussie, he conceded that the market brokers and banks are operating in is changing. Technology, he said, is changing consumer behaviour and the way clients interact with brokers and banks. Narev argued that CBA was working hard to stay ahead of the curve.

“We just finished a project which took 1,500 people working full-time for six years, and that was to overhaul our core banking platform which had been in place since the 1960s. That’s how seriously we take it. We feel we can either sit there and watch the world pass us, or we can lead it.”

The bank is also changing the ways it communicates with its customers, Narev said.

“Now, in all CBA branches we have conferencing technology. For instance, if you were in a regional centre and you wanted good advice on insurance, you previously had to come to the branch. We had to ask, ‘Do you mind driving two hours, or do you mind coming in on the 5th of next month?’ Now you can walk into a cubicle and have a face-to-face interaction with a specialist. That’s a good example of how the competitive advantage we have within our reach – 1,000 branches – aligns with technology to deliver a better customer experience,” he said.

But brokers shouldn’t fear the advent of such technologies, Narev argued. Client behaviours may be changing, and customers are becoming better informed and savvier, but Narev still believes brokers have a bright future. “No matter how the technology develops, the face-to-face interaction is always going to be critical.”